Abstract:  A two-echelon supply chain for service parts composed of a manufacturer, a number of distributors, and multiple customers is considered. It is assumed that the locations of the manufacturer and customers are known. Then, the issue addressed in this paper is to determine the locations of the distribution centers and the transportation routing, and control the inventory, or it is the combined location routing and inventory problem (CLRIP). To solve this problem, a twolevel architecture is proposed. With this architecture, the problem is formulated as an integer programming. The model takes the benefits for both supplier and customers into account. Also, in the model, the justintime distribution (JITD) philosophy is adopted for the distribution network design. Thus, it can significantly improve the customer service level and reduce the total system cost as well. Because of the combinatorial nature of the problem, a heuristic algorithm is developed to solve the model. A numerical example is given to illustrate the application of the proposed method. Result shows that it works well.

Key words: service parts, distribution network, just-in-time distribution(JITD), bi-level programming